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Introduction To Trends And Time Frames
Making sense of trends and time frames is an often confusing task. At any one time, in any given time frame, multiple trends can be at play. There are long term secular trends, shorter term primary trends, still shorter term secondary trends and yet shorter still near and short term trends. Adding to the confusion of trends is the time frame. What may be easy to spot in one time frame may not be so easy to spot in another. This article will help to make some sense out of trend and time frame for binary traders. This is an important aspect of trading and one that I highly recommend everyone master regardless of their chosen strategy. The old saying, “the trend is your friend, trade with your friend” is as true today as the day it was first spoken. Likewise, the saying “a rising tide lifts all boats” is equally apt.
A trend is defined as a general direction is which something is moving or developing. In the case of trading financial assets a trend is a measurable direction in prices, usually up or down. Trends can and do exist in every time frame and understanding how they work is one key to avoiding frustration. Imagine this, the tide is rolling in and each wave that comes onto the shore is a little higher than the next. All of a sudden one wave pulls way way back, looking as if the tide may have turned. Is it more likely that the next wave will meet or exceed the previous high water mark or less? This is the essence of trend analysis, determining the direction of the market tide and the probability that the next wave will be higher or lower than the next.
The Secular Trend
The first, and strongest, trend for traders to be aware of the secular trend. The secular trend is one that last anywhere from 7 to 15 years and is usually in synch with underlying economic conditions. A secular bear market is one in which the markets trend down to sideways for a period measured in years. A secular bull market is one in which the markets trend upward for years. In a bull secular market it is more likely for shorter term bear markets to meet support and return to bullishness than they are to result in major correction. The same is true in reverse for a secular bear market. This trend can be observed on a chart of 10 years duration or longer as shown here. I use monthly closing to help focus the chart. Within the secular bear market labeled here there are periods of up and periods of down markets, these are the primary trend.
The Primary Or Long Term Trend
The primary trend is the largest measurable price movement within a secular market. These trends tend to last from 3 to five years depending on strength. You can see that within the secular market I have market there are at least five discernible primary trends ending with the final bull trend that broke the top of the secular bear market range. Take note that during the secular bear market that the bearish primary trends are much stronger and of longer duration than the bullish primaries. This same phenomenon will be true in reverse for secular bull markets. In order to analyze the primary trend I drill down to a 3-5 year chart of weekly closing prices, whichever is needed to include the entire movement. This next chart shows the final primary trend of the 1999-2020 secular bear market. We can see again that on this chart that there are shorter bull and bear markets within this trend but that the underlying primary is in control. Bear markets are not as deep as bull markets are tall. Trades made in this time frame would have an outlook of weeks or even months.
The Secondary Or Short Term Trend
Within the primary trend are secondary trends. These are the near and short term rallies and dips driven by news and events. They are also the trends of most interest to me and other binary traders focusing on weekly and monthly expiries. To view the secondary trends I move down to charts of daily price action like the one below. Signals on this chart would have an outlook of a few days to a week or up to a month. There are even trends within this trend driven mostly be fears and expectations and less by actual news or events.
Why Is Trend Analysis Important?
It is important to understand trend for several reasons but most importantly to help understand why one trade is more likely to profit than another. If the market is trending lower in the primary trend then it is less likely for a bullish play on the secondary trend to work than a bearish one. Likewise, if a signal in the secondary trend confirms the primary trend then it has a higher chance of profiting than a secondary signal that is counter to the primary trend. One way to line up a great trade is to have as many time frames in confirmation as possible. The secular trend is really too long for binary traders but you can start with the primary trend and move down to the secondary trend and then the near term trend. A signal taken with all three trends in alignment has the most chance of success.
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What Time Frame Should I Use On My Charts?
This is a very common question, frequenting popping up in the comment section of articles involving indicators, strategies or trading in general. “What time frame should I use on my charts?” is a good question, but ultimately it depends on your trading style, personality and the type of strategies you gravitate toward. Here we’ll address these issues so you can focus on the time frame that is right for you, saving you from frustration, wasting time and maybe even some losses.
What You Have Time For
In order to determine what time frame to watch on your chart, you must first assess how much time you actually have each to look at your charts. If you only have 20 minutes to check out charts after you have worked a full day and most of the major markets are closed, day trading isn’t a viable option. Therefore, you’ll need to focus primarily on 4-hour or daily charts which allow you to see longer term trends so you can base your trades on those. You’ll most likely have to be a swing trader, or longer-term trader, with trades lasting several days to a few weeks in the latter case.
If you have a few hours during the day to dedicate to your charts, while major markets are open, then you have a few more choices. If you like sitting in front of your computer and actively trading with “your finger on the trigger” so to speak, then a watching a short-term time frame, such as a 1 or 2 minute chart is likely ideal. This time frame will give you the most trade set-ups for the time you have.
If watching every tick of the chart drives you crazy, then you’ll likely want to use a 5 or 15 minute chart. You’ll still likely get some trade signals, but not as many. You’re able to utilize your time effectively, but not drive yourself insane.
It’s worth noting that while some markets like forex are open 24 hours during the week, there are some points in that 24 hour period which aren’t worth trading. If you are trading forex pairs like the EUR/USD or USD/JPY, you want to make sure that either the European and/or US markets are open when trading the EUR/USD or the US or Japanese markets are open when trading the USD/JPY. When at least one of the markets in a forex pair isn’t open, price movements can be very random and thus not ideal for trading.
Trading requires well defined trading plan and strategies. Without a strategy a trader is just throwing darts hoping they hit something–which isn’t viable over any length of time. So hopefully you have come up with or found a few strategies that you like. Likely these strategies are best applied to certain market conditions, certain times of day or to a certain time frame.
Some strategies are easily adjusted to almost any time frame, while others will only work under specific conditions. For example, there are strategies designed specifically for the few minutes surrounding when a market opens. Trying to apply such a technique during the middle of the day is likely to be a losing proposition.
Analyze your strategies and determine what the best time frame is for those strategies. Hopefully what you have time for (section above) and the time frame your strategy requires align. If not, you’ll need to find another strategy until you have more time to dedicate to trading.
No One Time Frame is Perfect
The sections above hopefully helped you narrow down what type of time frame you should be watching. Ultimately though there is no perfect time frame that will suit everyone. Some traders are successful trading off tick charts, while others off 15 minute or daily charts.
This is where I will throw you a curve-ball. It is recommended that you don’t only look at one time frame. While a 1-minute or tick chart may show you a lot of information about very short-term movements, they don’t show the overall trend of what you are trading. A daily chart, may show the overall trend, but isn’t good for picking out intra-day entry points. Therefore it is recommended that traders don’t get addicted to only watching one time frame. Instead, look at two or three time frames.
Short-term traders can view a 1-minute, as well as a 15 minute and 1-hour or 4-hour chart. The 1-minute provides entry and exit signals while the 15 minute and hourly make sure the trader is acting on more complete information about the trend and support and resistance levels.
Swing traders and longer-term traders may focus on a daily chart, but can also use a weekly chart for providing a larger context for the trend and support and resistance levels. A a 15 minute (for example) chart can also be used for fine-tuning exit and exit points.
Looking at more than three time frames becomes cumbersome, and likely counter-productive.
Since there isn’t a “best” time frame to use on your charts, focus on a time frame that works best for you. What is best for you will depend on how much time you have which in turn affects what type of trader you will be. Then you need to make sure your strategies are aligned with the amount of time you have, and your personality. This will help you determine your “main” time frame, but ideally you should also look at one or two other time frames as well. This will provide you with more information about the asset you are trading, such as which way the short and long term trends are moving, and where important support and resistance levels are.
Choosing a Time Frame for Binary Options
Choosing a Suitable Time Frame for your Binary Options Trading Strategy
The following article provides detailed information about trading different time frames in binary options. This includes example strategies, guides and tips for trading different time frames.
>> Skip to your Preferred Time Frame:
1. 60 Second Trading
This type of binary option operates exactly as standard ones except their expiry time is just 60 seconds. They have only recently been introduced into the marketplace and are now supported by a number of prominent binary options brokers. They tend to remain within the domain of the expert trader as they require an in-depth understanding of the financial markets in order to utilize successfully.
This binary options variant has developed into one of the most popular tools by providing investors with the capability of profiting from the high volatility associated with key economic news publication. This is because these events can generate significant price surges within the matter of minutes. However, you will require professional understanding and knowledge to enable you to trade these releases proficiently. You should also appreciate that experts utilized advanced hedging techniques to increase their chances of success as well as substantially reducing their risks.
60 Seconds Binary Option Example:
– The USA Labor Department is scheduled to present its all-prevailing Non-Farm Payroll number imminently. Your fundamental studies strongly suggest that the outcome should be bullish by beating market expectations and should provide a boost for the US Dollar. As such, you decide to activate a 60 seconds ‘PUT’ binary option, based on the EUR/USD, in order to exploit this event.
– You hit the ’60 seconds’ button on your trading platform.
– You pinpoint the ‘EUR/USD’ asset. The present value is displayed as 1.3700.
– A return ratio of 80% and a rebate ratio of 15%.
– The present time is 8.29.30.
– Expiration will occur 1 minute later at 8.30.30 EST.
– You activate a ‘PUT’ binary option using the EUR/USD as its underlying asset.
– At expiration, the EUR/USD stands at 1.3684 and your position closes ‘in-the-money’. You collect a total payout of $1,800, including your initial deposit of $1,000.
– If, instead, the EUR/USD had risen to expiry with a closing price above 1.3700, then your trade would have closed ‘out-of-the-money’ and you would have received a rebate of $150.
60s Support and Resistance Strategy
The 60 second binary option has become increasingly popular since its inception during recent years. Several strategies are now presented that you can utilize to help you trade it successfully.
Most assets exhibit a strong inclination to progress in a series of waves with each featuring a crest and a trough. These restrictions are evaluated to be key retraction levels which may be easily recognized by major resistances and supports. A popular 60 seconds strategy is to detect those occasions when price distinctly rebounds against these levels. New binary options can subsequently be executed in the opposite direction to that in which price was advancing before it bounced.
For example, the following GBP/USD 60 seconds chart reveals excellent examples about when to implement both PUT and CALL binary options. Basically, anytime price rebounds against resistance then you need to initialize a ‘PUT’ option.
In the same manner, if price bounces upwards after probing support, then you should implement a ‘CALL’ binary option.
Your initial action to implement this strategy is to identify an asset that has been range-trading for some considerable time. You need to then recognize the prominent supports and resistances by either utilizing those displayed on your trading platform or by simply linking the highest peaks for resistances and the lowest ones for supports, as demonstrated on the above diagram.
After you notice price challenging one of these levels, you must then wait until the current candlestick verifies a genuine rebound by cleanly closing beneath a resistance or above a support. Adopting this process provides you with some defense against fake alerts. If an effective verification is obtained, then execute a new ‘PUT’ binary option, constructed on the GBP/USD, supported by an one minute expiry time in the event of price rebounding against a resistance, as exhibited on the figure above.
By betting $100 with a return ratio of 75%, you would have received a payout of $75 for both the ‘PUT’ binary options presented above. In fact, your original deposit of $100 would have increased exponentially to over $900 for the four positions identified above within five hours if you had reinvested your profits each time.
60s Trend Following Strategy
Another one minute strategy that has acquired significant popularity in recent times is structured on monitoring trends. This is because such techniques enable you to exploit the benefits of ‘trading with the trend’ and, as such, fulfils the intent of the famous adage, which advises that the ‘trend is your friend’. The fundamental concept is to track a trend and implement a ‘CALL’ binary option whenever price rebounds upwards against the lower trendline within a well-defined bullish channel. Alternatively, you should trigger ‘PUT’ binary options whenever price ricochets downwards after striking the upper trendline in an established bear trend.
For instance, the above one minute trading chart for the USD/CHF distinctly presents a well-defined bearish pattern. As you can verify from analyzing this diagram, four prospects for instigating ‘PUT’ binary options occurred after price rebounded downwards against the upper trendline.
When you utilize a trending strategy, you must initially detect an asset that has been progressing within either a bearish or bullish channel for a while. You then must construct the trendlines by linking a sequence of consecutive lower highs for the upper trendline and successive lower lows for the lower trendline during bearish trends, as highlighted in the above diagram.
After you notice price probing the upper trendline, then you should wait until the active candlestick is fully completed so that you can validate that it definitely exits below this level. If confirmed, then trigger a new ‘PUT’ binary option, based on the USD/CHF, supported by the 60 second expiry time. Visualize that your bet is $5,000 and the return ratio is 75%. The 4 successful positions detected in the above figure would have generated you over $4,700 in about two hours if you reinvested your gains every time. Perhaps now, you can start to comprehend why so many investors have become so excited about 60 second binary options.
60s Breakout Strategy
A popular 60 seconds strategy is attempting to exploit breakouts since they are relatively simple to identify and can produce outstanding profits. The principle concept of this approach is that, whenever the price of an asset has been advancing for some extended time-period within a confirmed horizontal channel, then when it does acquire sufficient momentum to breakout of this restricted range it normally travels in its preferred direction for some significant time.
Your first action to instigate such a strategy is to detect an asset that has been progressing within a limited range for some considerable time. Consequently, you will be seeking a horizontal trading structure that is distinctly demarcated by a top and a bottom, as illustrated in the above AUD/USD 1 minute chart. Frequently, price will rebound against its ceiling and floor several times before it eventually breakouts, as demonstrated once again by the above diagram. A major breakout should therefore be evaluated as a powerful sign to activate a new binary option.
2. Day Trading (15m – 24 Hours)
Many traders base their binary options trading strategies on day-trading which entails that all positions are opened and closed within the same day. If you desire to do the same then you will need to undergo serious training in order to ensure success. Do not follow the herd who think that this type of trading will produce them instant profits. The financial markets only allows those traders to prosper who have attained the right levels of education enabling them to develop good trading strategies which they can apply emotionless and with discipline.
However, if you are prepared to make the necessary commitments then the rewards are well worth the effort because you can attain a good lifestyle from day-trading. If that is so, then what is the best route forward you may well ask? You are well-advised to develop your day trading skills by using the following steps:
Day Trading Tips for Binary Options
1. You must first learn how to analyze the financial markets competently by gaining a good understanding of fundamental and technical analysis. You are also recommended to design your own trading strategy as opposed to trying to purchase one. This is because you will develop a better feel as well as superior skills in doing so. In addition, you need to select a good binary options broker supporting a top class trading platform.
2. Next, you are recommended to write a business plan that precisely details your trading strategy. You should also state the prime objectives that you would like to achieve from day-trading. In addition, you should include your risk analysis. Once you start to trade, you must then record all your trading activities, such as your entry and exit values of your trades as well as your profits and losses.
3. You must next use a demo account to fully test your trading strategy. You should attempt to simulate live conditions but without risking your own equity. You will discover that your many binary options broker will be very willing to provide you with such a facility. If not, then locate one that will.
4. Once you have gained confidence using your demo account, you should then progress onto live trading by exposing your equity to small incremental steps of increasing risk. You can achieve this by first using a micro live account then a mini and finally a standard one.
5. Your trading strategy must incorporate a good risk and money management strategy in order to provide the maximum protection for your equity. Many experts advise risking a maximum of 2% of your total equity per trade.
6. Day-trading can produce some very nerve-racking situations. Consequently, you must strive at all times to keep your emotions under as much control as possible. You can do this be sticking closely to your trading strategy.
7. You should constantly seek improvements for your strategy. If you do make any adjustments, then you must re-evaluate its performance by calculating its new win-to-loss ratio and expectancy value.
3. Swing Trading
If you are still experiencing serious problems caused by not strictly following the guidelines of your binary options trading strategy then do not become disheartened because there is a solution. You simply may need to change to a trading strategy that possesses features that you can trade consistently and with confidence. Does one exist you may ponder? Yes, one does and it is called Swing Trading. Yet, despite its many inherent features that are especially suitable for novices, you will discover that many of its advocators are still not able to use it with the discipline necessary.
What is Swing Trading?
As a swing trader, you will seek quality entry opportunities by identifying assets exhibiting short-term momentum. After you have executed new trades, you can keep them active for periods ranging from a few days to multi-weeks. Fundamentally, you will try to trade assets by deploying their monthly or weekly fluctuations between oversold and overbought statuses.
You are recommended to swing trade assets that are range-trading as opposed to tracking a trend. Generally, Swing trading provides a better foundation for a binary options trading strategy than many other popular methods. This is because you can more easily identify new opening and closing levels using the crossover features of renowned technical indicators, such as the Stochastic Oscillator and the Relative Strength Index.
Regardless of these significant advantages, you must still display the discipline required to adhere to your trading strategies because many traders fail to do so. This is because you need to be patient when timing new entry points. A study of the historical data records of any asset will clearly illustrate to you that they definitely create well-defined bottoms and tops. As such, from hindsight, trading such formations should be comparatively simple. Nevertheless, you will find that real life presents a very contrasting picture.
Additionally, you must develop a trading psychology that can deal with the negative emotions created during serious drops in your trading capital. You must maintain your trust in your binary options strategy even when price significantly moves against your trades. You will discover, however, that this skill is complex to learn because the financial markets generate unpleasant emotions that are very difficult to control.
You will need to possess a trading strategy if you want to trade the financial markets successfully. You must also ensure that your strategy is well designed and tested and exhibits a positive expectancy value. If you have little time per day that you can devote to monitoring your trades, then you may find that swing trading is a good solution for you. This is because it will involve you placing very few trades daily although the ones you do will be of high quality.
This strategy is highly recommended for novices because it is easy to understand and to construct a profitable trading strategy based on it. Swing Trading is an investment technique that will require you to open positions with more stable assets and then keep them live for periods that can extended from a few days to a few weeks.
Swing trading can function just as well in stable or volatile trading conditions and depends on the momentum of price and its short-term oscillating patterns. You do not need to wait for price to attain a highest or lowest value to enter new positions. Instead, you base your entry and exit conditions on oversold and overbought positions of assets, which are quite easy to detect.
You can also benefit from the fact that the oscillations of assets can exist for days, if not weeks. This feature provides you with ample opportunities to achieve substantial profits, if you can master this strategy proficiently. You will also not have to devote serious amounts of time monitoring your open positions. If you have a full time job, then you should benefit greatly from this attribute.
You will just need to monitor your trades a couple of times a day just to evaluate their progress. Expert consensus views swing trading as one of the less risky trading strategies because it allows you to open positions based on consistent fluctuating patterns as opposed to more unstable events, such as fundamental news.
Basically, you need to identify assets exhibiting stable trading patterns so that you can profit by opening trades that follow their well-defined oscillators or swings. This is a great strategy to select if you are concerned about your risk exposure. You can take a further step to provide optimum protection for your equity by also utilizing sound money management concepts.
You can build a trading strategy that will enable you to undertake Swing trading by using a technical indicator such as the Relative Strength Index (RSI) indicator (pictured above). This tool identifies overbought conditions of an asset when it registers readings of 70 and above. Similarly, the RSI posts oversold conditions when its readings are flagging 30 and below. You should use this indicator with time frames that extend form the daily and higher because their associated statistics are more reliable than those of lower time-frames. You should execute a ‘CALL’ binary option whenever the RSI drops below 30, bottoms out and then climbs back above the its 30 level. Similarly, you should activate a ‘PUT’ binary option after the RSI climbs above 70, achieves a top and then drops back below its 70 level.
The RSI has gained a good reputation for monitoring the oscillations of assets using Swing Trading. However, you must take care because the RSI cannot guarantee success just on its own and so you must be wary of false signals. You can increase your confidence by utilizing a second indicator as a confirmatory source, e.g. Stochastic Oscillator.
4. The Power of the Longer Time Frames
When you were first introduced to binary options trading, you may have been lead to believe that because price generates predictable patterns that you could easily predict its future movements. This certainly would be fantastic if it were true because then you could achieve considerable success and profits. This would be extremely desirable state of affairs whether you were a novice or an experienced pro.
Is there any truth in this observation and can you really forecast the financial markets that easily? You will find that assets do, indeed, constantly produce price formations that are generated by such events as risk aversion and risk appetite, etc. If you were to research into the trading psychology that creates many of the famous price patterns, such as tops and bottoms, then you could enhance your analytical skills in order to produce more profits.
However, you will discover that this objective is harder to achieve than at first glance. Your main problem is that price does not generate movements that adhere to any type of predictable formula but seem to advance in a form of ordered chaos. If you perform a lengthy analysis of trading charts, then you can certainly verify that assets do definitely produce price trends that do exist for some extensive amount of time. Consequently, you are recommended to try to trade trends instead of attempting to predict their precise point of birth.
If you do undertake such a task then you must not make the beginner’s mistake of concentrating your analysis on trading charts displaying the very short time-frames. In contrast, you will fare much better if you study trading charting using the daily time-frame or higher. This is because you will discover that the statistics associated with the larger times frames are superior to those of their shorter time-frame counter-parts.
In addition, you will obtain a better and clearer picture of price movements and formations because the longer time frames filter out more of the random noise generate by the financial markets. If you use shorter time frames then you will find that this noise problem will become increasingly amplified. Many experts even advise that you should not consider using time frames of less than one hour if you are a novice. This is because the better quality information displayed by trading charts using longer time-frames will allow you to identify price formations much better.
You need to understand that although price may have been advancing in a trend for some time that it could still generate rapid oscillations and retractions very quickly. After some analysis, you could deduce that a trend comprises many smaller price fluctuations within its boundaries. Consequently, the main enemy that you will need to counter if you consistently utilize shorter time frames is noise which will constantly obstruct your trading analysis. However, if you choose more wisely and use longer time-frames, then this problem will be minimized providing you with better quality trading opportunities.
You also must understand that many beginners opt for the shorter time frames because they think that the associated increased action produced by the random noise will present more opportunities for faster success. However, this is a serious misconception and will only generate major losses over the long haul.
5. Volatility and Time Frames
Basically, you will discover that statistics provide more reliable readings the longer the time frame you use on a trading chart. You will also be able to verify that this feature is especially so when price is experiencing a stable period. Consequently, you are advised to base your trading strategies on the daily time-frame or higher. Some traders do utilize the shorter time-frames of 10 minutes and under for specific types of trading strategies although they realize that very short time frames are not recommended for statistical analysis.
For instance, scalping is constructed on the premise of very short time frames has been incorporated into the design of many automated robots. You will find that you can develop a trading strategy by selecting from a large number of times frames. If you have constructed or bought a successful trading strategy exhibiting a positive expectancy value then you are advised to stay with it and optimize its performance. If not, then the following information may be of use.
You will discover that volatility can produce abnormal price formations. In addition, the larger price movements and spikes that are associated with these violent trading periods dramatically hinder the effectiveness of statistical analysis. You must also realize that even the longer time frames can expose trading positions to sudden sharp price retractions.
Unfortunately, many novices view the market conditions produced by increased volatility as just increased opportunities for large profits. However, you must understand that the resultant large price swings generate substantial opportunities for sizeable losses if you do not take the necessary precautions. Consequently, you must alter your trading strategy in order to be able to cope better with these erratic conditions. You can achieve this objective by considering the following types of action.
1. Use Less Leverage
When price is volatile, your top priority is to protect yourself from the demoralizing effects of serious losses. You can achieve this objective by evaluating how your current levels of leverage affect your positions and if you need to alter them.
2. Choose your new trades with more caution
You must not consider opening more positions during volatile times just in order to capture larger profits. You must understand that under these conditions you could easily incur excessive losses.
Consequently, you must take extra time evaluating the reward-to-risk ratios of every trade very carefully before you implement them.
More About Adam
Adam is an experienced financial trader who writes about Forex trading, binary options, technical analysis and more.
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